Exam 8: Net Present Value and Other Investment Criteria

An investment costs $100,000 and provides a cash inflow of $17,000 per year.If the discount rate is 13%,how long must the cash inflows last for it to be an acceptable investment?

When you have to choose between projects with different lives,you should put them on an equal footing by computing the equivalent annual annuity or benefit of the two projects.

If a project has a payback period of 5 years and a cost of capital of 10%,then the discounted payback will:

A project's payback period is determined to be 4 years.If it is later discovered that additional cash flows will be generated in years 5 and 6,then the project's payback period will:

For mutually exclusive projects,the IRR can be used to select the best project:

If two machines produce the same product but have different lives,you should choose the machine with the:

A project can have as many different internal rates of return as it has:

If the net present value of a project that costs $20,000 is $5,000 when the discount rate is 10%,then the:

How many IRRs are possible for the following set of cash flows? CF₀ = −$1,000,C₁ = $500,C₂ = −$300,C₃ = $1,000,C₄ = $200.

A risky dollar is worth more than a safe one.

Which of the following investment decision rules tends to improperly reject long-lived projects?

A project requires an initial outlay of $10 million.If the cost of capital exceeds the project IRR,then the project has a(n):

As the opportunity cost of capital decreases,the net present value of a project increases.

Which of the following projects would you feel safest in accepting? Assume the opportunity cost of capital to be 12% for each project.

If a project's expected rate of return exceeds its opportunity cost of capital,one would expect:

When a manager does not accept a positive-NPV project,shareholders face an opportunity cost in the amount of the:

Use of a profitability index to evaluate mutually exclusive projects in the absence of capital rationing:

If two projects offer the same positive NPV,then they:

What is the maximum amount a firm should pay for a project that will return $15,000 annually for 5 years if the opportunity cost is 10%?

Because of its age,your car costs $4,000 annually in maintenance expense.You could replace it with a newer vehicle costing $8,000.Both vehicles would be expected to last 4 more years,at which point they will be valueless.If your opportunity cost is 8%,by how much must maintenance expense decrease on the newer vehicle to justify its purchase?